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BoE’s Blanchflower: Don’t assume crisis over.

Posted on: June 5, 2009

Reuters – Thursday, May 28

LONDON, May 28 – The world should not assume that the worst of the global economic crisis is over, Bank of England monetary policy committee member David Blanchflower said in comments published on Thursday.

“My worry is that there can be many false dawns and we shouldn’t just assume that everything is over,” the usually dovish economist told The Times newspaper.

“We have to have a rethink. You’re going to have to throw away lots of economics and start again. How can anybody not say that when we’ve had the greatest financial crisis in 100 years.”

Blanchflower, who steps down from the MPC at the end of this month, said that while he had long been a lone voice calling for rate cuts on the BoE’s rate setting committee, he had taken no pleasure in being proved right when the financial crisis hit.

“I don’t think vindicated is the right word,” he said. “It’s a smug position. I don’t feel that in any way. I was fearful of what was coming and it turns out it has come. And I take no comfort in that.

“It is hard to feel vindicated when the economy is in a very difficult position and we are faced with a most enormous recession.”

Blanchflower, who started voting for rate cuts in October 2007 as the crisis began to dawn, said that one of his earliest dissenting positions was to argue that there was going to be no explosion in wages as others on the committee were predicting.

“I was a lone voice. Now we are seeing the biggest decline in wages we’ve ever seen,” he told the paper.

He said the Bank had been too narrowly focused on inflation, which meant that it kept rates high for too long.

“It would have made a substantial difference if we’d been cutting earlier on,” he said.

Despite having carved out a niche as something of a Cassandra — a contrarian who no one believes but who ends up getting it right — Blanchflower said debates on the MPC had always been polite.

“The MPC’s greatest strength that one can have a dissenting voice,” he said.

“It was extremely uncomfortable to be in a minority of one for a very long time. The worst bit was in the middle of August last year, feeling completely alone. I was a lone voice, and maybe a lost voice, maybe a lost cause. That was the worst part.”


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